Qx White Paper

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Qx White Paper

  1. 1. Table of ContentsWhy Automated Examination & Valuation? .................................................................................................... 3Introducing StreetLinks QX ............................................................................................................................. 4 The Rules Engine ................................................................................................................................... 4-10 Rule Construct ................................................................................................................................................... 5 Rule Structure Diagrams ................................................................................................................................... 5 Rules Engine Attributes .................................................................................................................................. 6-7 The Rules ........................................................................................................................................................ 8-9 Rules Characteristics .................................................................................................................................... 9-10 ValueComp.............................................................................................................................................. 11 Manual Examination Manager ............................................................................................................ 12-13 2
  2. 2. Why Automated Examination & Valuation?Real estate appraising is the practice of developing an opinion of the value of real subject property,usually its market value. The need for appraisals arises from the heterogeneous nature of residentialproperty: no two properties are identical and all properties differ, to some degree, from each other inlocation – which is one of the most important determinants of their value. There cannot exist a solelyadequate, centralized, market-based pricing mechanism for trading real property assets and thus, theneed for expert appraisal/valuation by a skilled, licensed appraiser.For the purposes of the information contained in this document, appraisals refer to the summary reportcompleted on industry standard forms for the purposes of mortgage collateralization. Within anappraisal, it is the responsibility of the appraiser to credibly and thoroughly develop a value opinion tothe extent that it may be understood and relied upon by the intended user – the lender. The development of a value opinion is an exercise in the application of defined appraisal principles andpractices. The appraiser determines the variables that are available and relevant for analysis, whichinclude, but are not limited to, market conditions, site and improvements characteristics and condition.While industry standard forms have done well to itemize the most commonly relevant variablesrequired to credibly establish value for real property, the true conveyance of the appraiser’s analysis toderive a value opinion is contained in the appraiser’s narrative description of such.Just as the heterogeneous nature of residential property stifles the use of a purely automated pricingmechanism and demands the expertise of a skilled appraiser for property valuation, it also impacts theability for the lender to understand and rely on the appraiser’s analysis upon receipt of the appraisal.Lenders making decisions based on collateral valuations have been commissioned by regulatory controlwith the responsibility to procure and account for professional quality appraisals. The ramifications ofnegligent valuation procurement and examination are significant. For this reason, the lender mustemploy skilled analysts and sophisticated tools to understand the contents of an appraisal in order tomeet its regulatory commissions and make correct lending decisions.Undoubtedly, the most accurate account of an appraisal is received from an equally qualified, unbiasedappraiser that is geographically competent in a subject’s marketplace. This is due largely to the historicallack of access to local market data and/or inability to validate proper selection and reconciliation of themost relevant market data available when determining appraisal accuracy. Nevertheless, cost and turn-time constraints have historically been prohibitive for lenders in relying solely on local appraisers forvaluation examination.In effort to reduce the cost and turn-time of appraisal examination, lenders have continually sought anappraisal examination process with the power and sophistication to emulate a local market examinationappraisal in a fast and cost efficient manner. 3
  3. 3. Introducing StreetLinks QXThe FIRST groundbreaking solution in StreetLinks’ new AutomatedExamination & Valuation division.StreetLinks QX (Quality Examination) is the culmination of the most sophisticated automated rulesengine, automated valuation examination model and manual examination manager ever developed.Residential appraisal principles and practices have been infused in QX directly by its developers,consisting of a panel of certified residential appraisers, computer programmers and mathematicians. Allcomponents of QX work together and are adaptive to data extracted directly from the appraisal reportand parameters defined by the user in its application of appraisal principles and practices.QX’s rules engine and valuation module supports a comprehensive automated report validation of thestandardized, itemized components of the appraisal while incorporating access to and analysis of real-time local market data. Every conceivable administrative and correlative component of the appraisalexamination is intelligently automated leaving only specific narrative elements that require humaninterpretation to the manual examination process.The comprehensiveness and dynamic capabilities of QX enables users to focus the specific expertise oftheir appraisal examination analysts to manually validate the narrative construct and support of theappraisal in a cost and time efficient manner using the necessary market data.QX is appraiser expertise perfectly fused with automated modules that are equipped with robust marketdata and reconciled in a systemic fashion by specifically skilled analysts.The Rules EngineThe QX Rules Engine is utilized to automate the examination and analysis of the complex and timeconsuming verifications and “checks” required within the lending process. This includes valuationanalysis, underwriting and any other data verification.It is important to reference that the rules “engine” is not limited to only valuation analysis. StreetLinkshas used the engine to develop a comprehensive appraisal analysis and verification product (QX);however, that alone does not provide an inclusive understanding of what the engine can do. In order tofully understand the power of the engine, an explanation of how it operates is required. 4
  4. 4. Rule ConstructThe sophistication of the QC Brain Rules Engine enables diverse rule structures including “nested” rulesthat are capable of incorporating multiple internal and external data sources coupled with dynamicresult actions. The rules engine is based on a very simple premise with the ability to implement it in verycomplex ways. The premise is illustrated with a simple logic equation. There is a left value and a rightvalue with an operator in the middle. The unique and complex nature of the rules engine is found in theattributes or features placed around this simple premise to achieve highly flexible and sophisticatedrules.Example: Value A = 1, Value B = 2, Operator equals < (less then)1 < 2 = TRUE.Rule Structure Diagrams 5
  5. 5. Rules Engine AttributesImport MappersThe rules engine includes an import data mapping feature that allows for unlimited unique data formatsor files to be mapped to our internal data format. For example, for QX, we provide native appraisalmapping formats for ACI XML, A la mode XML and PDF conversion of appraisals to our standard format.MISMO XML is not natively provided as it does not contain enough data from the appraisal to completea full and conclusive examination, thus QX requires native XML or PDF conversion.Data EnvelopesIn addition to supported, complete data files running through the rules engine, it provides the ability toreceive an envelope of data along with the file that can be used in the comparison process. An examplewould be an envelope of “order” data, including the subject property address, which enables a rule tocompare the subject property address in the appraisal file to the subject property address on the“order” received from another system.Rule Chaining / Decision TreeAnother critical feature is the ability to chain together rules. This allows for complex logic to be executedwithin a single rule to solve a single business question. Multiple assertions, or logic equations, can beassessed in a single question using a conditional decision tree.Below is a simple example of chained rules to identify wrong way adjustments:Does the appraisal report contain at least 3 comparable sales? – Yes.Then: Loop (defined below) all comparable(s) for adjustments where the subject property attribute issuperior to comparable property attribute. – Yes.Then: Determine if adjustment is given. – Yes.Then: Determine if adjustment is a positive value. – No / FAIL.LoopingExamining the comparable sales within the Sales Comparison Approach can be a complicated portion ofanalyzing an appraisal given the need to consider multiple data elements that can vary across multiplecomparable sales. Our looping feature allows us to collect data elements over any number ofcomparables or other groups of data elements within a file, and complete operators (sum, average,frequency, greater than, less than, etc) and logical comparisons against those data elements. 6
  6. 6. OperatorsThe operator is the function being performed between the left and right values of a logic equation, fromwhich rules are based. The rules engine can support any Boolean Operator.Synonym VariablesA powerful feature of the rules engine is the use of Synonym Variables. With the use of synonyms, thevalue of a data element can be determined or found even if that data element is described in differentways. For example, if a rule is written to take action on a data element when it means “Average,”synonyms can be assigned to make such a determination when the data element is presented indifferent ways such as: Avg., A.V.G., Avg, etc. On a more sophisticated level, synonyms can be expandedto include strings of words that are given a value or meaning from which action can occur onceidentified.Rule ManagerThe rules engine includes a web-based utility that allows for the development and management of allrules. Rules are written, verified, coded, tested, certified and released directly from the Rule Manager.The testing process requires a test file to be uploaded and applied to a rule to cover a specific node(conclusion) within the rule. Complex rules can contain hundreds of nodes. A rule is not available to becertified until its entire set of nodes has passed testing by yielding the expected conclusion. This iscritical to ensure accuracy and confidence in every rule within the engine. Once a rule is fully tested it isthen available within our workflow process to be certified as accurate and moved to production.Graphical Rule Examination UtilityTesting and certifying complex rules can become very complicated. Our Graphical Rule ExaminationUtility simplifies the process by creating a visual representation of a rule in “flow chart” style. When atest file is applied to a rule, the Graphical Rule Examination Utility visually displays the precise assertionpath taken to the resulting node and the specific data elements considered to get there within the flowchart. This process ensures that rule conclusions are behaving exactly as desired, removing anyassumption to their accuracy. 7
  7. 7. The RulesEvery rule in the engine carries a related appraisal examination - true or false, question and/or action -and this collection of questions and actions encompasses every component of a quality appraisalexamination to be perfectly aligned with all regulatory commissions, appraisal principle and practicesand client specific expectations.Client-Specific Underwriting CriteriaWhile rules within the engine are comprehensive, additional rules and questions can be added.Appraisal For-Specific CriteriaAll industry standard appraisal forms will be supported by the QX Rules Engine, including URAR,Condominium, Multi-Family, Manufactured Home, Field Examination, Ancillary Products, etc.To the extent that XML data is available, any form can be examined by the QX Rules Engine.Regulatory-Specific CriteriaAll regulatory commissions are covered, including:  UAD  FHA  203K  USDA  REO  USPAP  State Legislation  Fannie Mae 8
  8. 8.  Freddie MacAppraisal Content-Specific CriteriaSome of the most powerful rules are those that drive behavior based on the actual content of theappraisal under examination.Risk-Specific CriteriaRisk criteria are identified in many ways and may be as simple as a “declining” market or as complex as aspecific permutation of specific components of the appraisal. StreetLinks QX has been “hard wired” byCertified Appraisers and senior level Compliance Officers to identify truly relevant areas of risk primarilyas they relate to comparable selection and reconciliation in Sales Comparison Approach to value.Other risk criteria include:  FEMA Disaster Areas  Appraisal Inconsistencies  Public Data ConflictsImmediately upon feeding QX with an appraisal product for examination, its engine immediately goes towork firing rules, which are then systematically processed and solved to determine their applicabilityand defined actions, like a sophisticated neural network.Rule CharacteristicsRules are constructed to answer or assist in answering questions required to validate the credibility andaccuracy of appraisals. While the content and impact of rules and questions carry literally hundreds ofcategories, their general characteristics can be described as follows:Rule ImpactFully AutomatedRules that automatically and completely satisfy the corresponding question content.Auto-AssistRules that automatically extract and display all of the data required for an examiner to satisfy thecorresponding question content.Auto-PromptRules that automatically determine the relevance of the corresponding question based on extracteddata.ManualQuestions that are applicable on every examination assignment that cannot be automated or assisted byautomation. 9
  9. 9. Question ContentIndependent of the corresponding “rule impact,” questions are defined in the QX Rules Engine by tierlevel, which reflect the human skill set required to satisfy the question content.Tier 1Simple - Fields that must always contain data.Simple Consistency - Fields that must or must not contain data dependent on other variables.Tier 2Simple Tolerance – Elements within the appraisal that require common parameters - timeframe,distance, percentages, etc.Simple Support – Elements within the appraisal that require simple explanation.Tier 3Complex Narrative – Appraisal problems requiring significant explanation involving complex appraisalprinciples and practices.Complex Reconciliation – Reconciliation scenarios that require specialized experience to identify andvalidate.Risk Analysis - Identifying elements within an appraisal that may have material impact on marketabilityand/or on reconciliation and support of a value opinion for the subject property.Custom Tier – Custom Skill Set 10
  10. 10. ValueCompValueComp is a robust collection of purified data resources and variables that are analyzed withexceptional accuracy through our proprietary Adaptive Automated Valuation Examination Model(AAVRM). The QX Rules Engine and ValueComp work harmoniously with internal and external databasesto thoroughly validate and analyze appraisal data and conclusions.The key to ValueComp’s accuracy is its ability to verify the logical consistency of data extracted directlyfrom the appraisal to “learn” before performing its own analysis. ValueComp utilizes adaptive patternrecognition and applies appraiser-infused principles to particular situations. ValueComp coefficients aresensitive to market information and variables extracted directly from the appraisal being reviewed inorder to establish market-specific coefficient relevance before emulating appraiser methodized valuereconciliation.ValueComp is used by the Rules Engine specifically to analyze the Sales Comparison Approach, including: Accuracy of subject property & comparable data Appropriateness of comparable selection Actual location and distance of the comparables from the subject property Overall comparable reconciliation Final value opinionUnlike traditional automated valuation models, ValueComp does not simply display a map and laundrylist of area sales that may or may not be relevant to the subject property. ValueComp extracts thecomparables utilized in the appraisal, verifies the logical consistency of subject data extracted directlyfrom the appraisal and analyzes the information together with local market data. The results ofValueComp’s analysis are fed to the QX Rules Engine for further processing and the high level results andrecommendations are presented in report format. 11
  11. 11. Manual Examination ManagerSimple Point and ClickIn an effort to reduce the cost and turn-time of appraisal examination, lenders have been seeking anappraisal examination process with the power and sophistication to emulate a local market examinationappraisal in a fast and cost-efficient manner. In order to serve cost expectations, traditional appraisalexamination process providers have suggested that in the absence of “flagged risk factors,” appraisalsdo not need to be analyzed. The StreetLinks QX Examination Process takes a completely differentapproach, given the aforementioned heterogeneous nature of real property and the highly volatilemarketplace in which it is traded.Although to varying degrees, true validation of an appraisal report requires skilled manual examinationand interpretation. The feasibility of such a requirement can only be realized by the creation of a manualexamination that is maximally efficient.The QX Manual Examination Manager coordinates and organizes all input received from ValueComp andthe Rules Engine to display only the precisely relevant examination questions. This degree ofspecialization results in the cost and time efficiency required to commit to properly examining everyappraisal.Users are not simply presented with a list of failures, alerts and warnings that provide generalexamination guidance in potentially risky transactions, but rather, receive the exact “questions” thatmust be answered to truly validate the appraisal for every transaction. The Manual ExaminationManager gives the examiner a precise “examination playbook” that is systemically and dynamicallycreated for a particular examination assignment. Conclusions to questions made by individualexaminers are automatically cumulated and compared to benchmarks in order to immediately identifypotential user inconsistencies. All guesswork is removed from the examination process as examiners areable to execute precisely what is instructed by the Examination Manager – nothing more, nothing less. 12
  12. 12. Manual Examination Manager 13
  13. 13. Start Using QX Today! Thank you for taking the time to learn more about how StreetLinks QX can help you save time,increase appraisal quality and reduce repurchase demand. Contact us to optimize your collateral underwriting process with QX today! p: 1.800.521.6926 | e: qxsales@streetlinks.com | www.streetlinks.com 14

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